Begin by hiking tax credits for working poor

on June 27, 2013
Posted by NationBuilder Support

Last September, the Broadbent Institute issued a major discussion paper, Towards a More Equal Canada, on rising economic inequality. We followed up in April with a brief to the Commons finance committee on what income tax and transfer changes could promote a fairer Canada.

Extreme economic inequality undermines democracy and the common good. Very unequal societies do much worse in terms of social and economic performance, in health and life expectancy, social mobility (equality of opportunity for children), crime levels, the quality of democracy, and levels of social trust.

While it is true that rising inequality is due in significant part to economic factors such as globalization and technological change, it is equally true that some advanced countries have remained much more equal than others. In the final analysis, the level of inequality in a nation is a matter of political choice.

Research shows Canada used to do quite well at striking a balance between a growing market economy and a fair distribution of the fruits of growth. But cuts to social programs and public services as well as changes to income support programs and personal income tax since the mid-1990s have compounded inequality.

Recent income tax changes have disproportionately favoured the rich. Providing a basic income-tested guarantee to all citizens through a fairer personal income tax system — a negative income tax — would be a powerful force for greater equality.

Our brief to the finance committee argued we should start by significantly increasing the federal Working Income Tax Benefit, which provides a very modest tax credit to Canadians who work but still have very low incomes.

The greatest gap in Canadian income support programs is for workers and families who do not qualify for welfare but remain in poverty since they are employed in precarious and low-paid jobs.

More than one-third of working Canadians do not have permanent, full-time paid jobs. Many fall below the poverty line due to low hourly wages and/or not enough weeks of work in a year.

The working poor and near poor — who move in and out of low-paid jobs but often fail to attain a decent standard of living — is disproportionately made up of recent immigrants, especially those belonging to racial minorities, persons with disabilities, female single parents, the single near-elderly, aboriginal Canadians, and young people trying to get into secure employment.

Credit should be given to the present federal government for creating the Working Income Tax Benefit, a new form of benefit which in the U.S. and elsewhere has reduced poverty while promoting employment.

But the benefit is modest (less than $1,000 for a single person and less than $1,800 for a family) and is lost completely at low levels of employment income ($18,000 for a single person, $27,000 for a family).

The maximum benefit should be increased significantly and phased out more slowly as income rises so recipients are always better off if they find more work or better-paying jobs.

Increases to the Working Income Tax Benefit should be matched by incremental increases in minimum wages to ensure supplements for the working poor do not become subsidies to low-wage employers. Minimum wage levels should ensure a single person working full-time for a full year does not live in poverty.

Improving conditions for low-wage workers will also involve raising minimum employment standards for hours of work, rights of part-time workers, pay and employment equity, enforcing such standards, facilitating access to unionization, and greatly expanding training for unemployed and under-employed workers.

Hopefully, the Commons finance committee will be able to achieve all-party agreement to assist the working poor by expanding the Working Income Tax Benefit. This would be an incremental but real step towards a more comprehensive negative income tax system.